THE DAY AHEAD: Time, appeals on Microsoft&#039s side

As expected, Judge Thomas Penfield Jackson issued his findings of law against Microsoft Corp. (Nasdaq: MSFT) in the ongoing antitrust battle. As expected, Jackson ruled Microsoft was evil.

Microsoft: Will it eventually win?

Microsoft's campaign "can be broken down into discrete categories of activity, several of which on their own independently satisfy the second element of a monopoly maintenance claim," wrote Jackson. "But only when the separate categories of conduct are viewed, as they should be, as a single, well-coordinated course of action does the full extent of the violence that Microsoft has done to the competitive process reveal itself."

Good theater, but nothing is new there. Wall Street knows Microsoft plays hardball – which is why a lot of institutions and individuals own shares. Since the market hates surprises, Jackson's ruling almost qualifies as good news. If you're a long-term investor, you got Microsoft shares on sale Monday. Why buy now? Two words -- appeal and time.

This battle isn't going to end any time soon. Both the government and Microsoft held press conferences that had enough bluster to make boxing promoter Don King proud. But it's only round two.

The government said it was a great day for competition. Every company, including Microsoft, has to play by the rules.

Microsoft said it will appeal -- and win. CEO Steve Ballmer said it ain't over until the appeal is over.

Ballmer's right. And that's why some investors will dive in. Microsoft shares plunged 15 percent on Monday in the hours leading up to Jackson's ruling. It was selling ahead of the news. Now that the news is out, Microsoft shares could gain.

Jackson's ruling is just one step. He has to propose remedies. And then there's the appeals process. Microsoft is going to fight any remedy. That fact will drag this antitrust suit along for years. By then will anyone remember Netscape?

Probably not.

By time the case is resolved, Microsoft will have almost two years to gain a strong foothold in the Internet software market. Investors won't remember this case next week.

Speaking of short-term memories, Microsoft's not-so-merry band of lawsuits will soon take a back seat to earnings and the software giant's soon-to-be-announced five-year plan. Microsoft reports third quarter earnings on April 20.

The March quarter will be decent, but many analysts are expecting strong results for the June and September periods. Windows 2000 sales will be the real growth engine, said analysts.

Windows 2000 sales kick in just as the appeals process gets under way. That double dose of good news may have Microsoft rallying into the fall. Microsoft is also seeking to move the appeals process along quickly.

Andrew Roskill, an analyst with Warburg Dillion Read, reckons that Microsoft shares will rebound once the appeals process starts. "They have better prospects in the appellate court," said Roskill. "Microsoft can appeal to the Supreme Court."

It's also worth noting that Microsoft's antitrust woes have provided buying opportunities in the last year (chart). Jackson last ruled against Microsoft in November.

Odds and ends

When asked whether Microsoft's antitrust battle will hurt employee morale -- and stock options -- Ballmer had a quick response. "No employee has ever been sad to have our stock options," he said.

Microsoft Chairman Bill Gates is sounding more defiant these days as the software giant heads toward an appeal. The appeals court has helped Microsoft before, but Gates should ease off the cockiness. That's part of the reason Microsoft got in trouble in the first place.

The remedy part of this antitrust game will be much more entertaining. Once the government proposes some remedies, investors can start plotting more scenarios. Sun Microsystems (Nasdaq: SUNW) is already calling for a breakup. Worried Microsoft shareholders should ask those long-time AT&T (NYSE: T) investors how profitable a breakup can be.

Now that the ruling is out against Microsoft, look for the competitors to gain. Corel (Nasdaq: CORL) and Red Hat (Nasdaq: RHAT) surged in after-hours trading. Does Microsoft's court battles directly boost the fundamentals of Red Hat, Corel and Oracle (Nasdaq: ORCL)? Not immediately, but it's a nice trade.

Legal woes and the Nasdaq sell-off knocked Microsoft to third place in the most valuable company race. General Electric (NYSE: GE) reclaimed the top spot as the most valuable U.S. company. Cisco Systems (Nasdaq: CSCO) is in second place. Chalk one up for the old economy.